5 Steps to Choosing the
Right Loan Origination System

The right solution is out there. This guide can help you find it.

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Selecting a loan origination system is one of the most important decisions your financial institution will make. 

In recent years, many banks and credit unions have been motivated to up their lending game due to increased competition from non-traditional players like marketplace lenders. In fact, financial institutions planning to upgrade their LOS outnumber those planning to upgrade their core systems by 2 to 1, according to a recent article published in American Banker. 

You may have tools in place to streamline your loan processes and gain efficiencies, but you need an end-to-end solution. Or maybe you’ve built something in-house that has been good enough, but it can’t take your loan origination processes to the next level. You might be using an outdated, inefficient LOS that is costly to operate and—worse yet—costing you business. Smart financial institutions study the options available to find the most efficient systems to maximize their profitability, utilization of customer relationship data —and their investment in technology.

Because efficient, intuitive lending processes are integral to your business, an in-depth LOS evaluation is critical. This guide is intended to help lead the way. We’ve developed five key guidelines to consider, discuss with your team, and document before deciding to purchase, replace, or keep your existing LOS. These guidelines will help you identify the right LOS to:

  • Provide a cohesive strategy for your loan origination process
  • Handle compliance and functionality requirements
  • Increase efficiency, manage costs, and meet regulatory challenges
  • Help you prepare for the changing loan marketplace and be ready to capitalize on opportunities for new loan business

Begin your plan with the customer in mind

Your loan origination system should drastically improve the experience of your customers; therefore, it’s important to be aware of the pain points your customers feel during the lending process. 

For instance, the Federal Reserve revealed in a recent survey that nearly half of applicants that applied for loans at small and large banks were dissatisfied with the long wait for a credit decision. Similarly, 44 percent of applicants at large banks and 42 percent at small banks were unhappy with the difficult loan application process. Meanwhile, only 26 percent of applicants that used online lenders were dissatisfied by the application process and only 17 percent experienced a lengthy wait for a credit decision. These insights can help ensure your new LOS addresses these issues and supports a more positive customer experience. 

If you offer consumer, small business or commercial lending, make sure your LOS has a common loan origination design. Common loan origination involves using one system to help a financial institution define a standard set of processes for originating any type of loan request. This standardization drives efficiencies in the underwriting processes to ensure policies are being adhered to across business lines, whether retail, commercial or small business loans. Most importantly, it maximizes the use of the customer data across all of the loan types. This results in reoccurrences of customer inquiries for data and streamlines the fulfillment of the loan application. It also provides insights across the entire relationship, so you are better able to make accurate risk decisions.

Furthermore, discuss your business strategy for both new and existing clients. Each requires a different view of your data, and you’ll want an LOS that can handle extracting required data. Take some time to consider your borrowers and make sure your LOS addresses their needs as well as your own.

Consumer Lending Needs

Borrowers today demand a transparent lending process and the ability to move quickly and easily each step of the way. Your system must support that need. Within your institution, you need a loan origination system that can leverage analytics and scoring so you can respond to customers quickly and with the minimal investment of time and resources. Also, your system has to be able to engage on the consumers’ terms when it comes to taking a loan request. A mobile or internet based solution allows for 24-7 access and provides an answer for the “couch to bank” channel. Remember: the speed of decision making in the consumer lending arena is key—success comes to institutions that capture and decision loans with the least amount of time and customer friction.

Small Business Lending Needs

Centralized lending workflow support is critical for any small business portfolio. Most successful financial institutions have a centralized process and LOS support for that process should be a top requirement. Make sure the workflow is flexible enough to leverage opportunities but also strict enough so your lenders cannot push things through without proper risk management. 

A strong LOS should provide the data needed, such as personal and business financial history for a small business loan applicant in order to minimize portfolio risk and be highly responsive to the customer’s needs. An LOS that leverages a centralized database can import data from the core as well as from external systems, which make it a reliable resource for grouping customers into relationships for more effective risk management.

Additionally, your LOS should support multiple decision strategies based on your financial institution’s credit policies. Also, if your institution
currently uses a manual review and underwriting process but is looking to move toward an autodecision strategy, a good LOS can help facilitate that through comprehensive pricing capabilities, data analysis and portfolio reporting. Also even if you do not move toward full auto-decisioning, the consistency of the LOS workflows will help drive even more consistencies and efficiencies in the lending process, giving employees more time to focus on revenue-generating activities like business development efforts. To do this, they must have complete confidence in the accuracy of the data captured from start to finish.

Commercial Lending Needs

Like with a small business loan, speed, process efficiency and data accuracy are extremely important in commercial lending. The credit memo is a key outcome for this line of loans, and your LOS must be able to produce a robust credit memo, pulling out accurate, pertinent data to the credit, rather than just standard reports. If your LOS can be customized to pull information from different systems, it can create a more complete and useful credit memo. Your LOS credit memo capabilities should be configurable and provide your financial institution with a complete view of risk while maximizing opportunities within the loan portfolio. This encourages a more proactive approach to relationship management and supports strategic sales planning across lines of business, enabling your institution to maintain and nurture relationships with valuable commercial clients. 

Ideally, your LOS will also help your financial institution manage the entire commercial lending process and all its needs, including relationship management, deal structure, pricing and profitability, and credit analysis, all in one place. Such a system will ensure your institution can efficiently analyze deal opportunities, effectively price them, decision them, and ultimately, optimize portfolio performance.

For all lending types, your loan origination system should be able to take the borrower from the beginning of the process through the workflow and finally to documents. Thorough, automated documentation is important to comply with regulations for all loans. 

You can’t have a successful loan operation without keeping your customers happy. Start with a list of needs relative to your borrowers, and you’ll be on track to selecting the right LOS.

shaking hands with client

Risk Management and your LOS

Your LOS should feed into your risk management process and turn annual reviews into positive growth experiences for you and your customers. Using a sound risk management and a robust reporting tool, you can continually review loan performance and assess opportunities and with a strong LOS, the renewal and ongoing loan monitoring processes don’t have to be painful. Instead, these processes can be streamlined by flagging high-performing credits for new opportunities or by identifying and proactively monitoring potentially troubled accounts before they enter delinquency.

Imagine meeting with a small business owner with a revolving line of credit armed with the knowledge of how his or her loan has performed over the past year and being able to turn that meeting into a discussion about what’s next for each of you. You should expect your LOS to do this—and more. 

5 Reasons to Upgrade Your Commercial Loan Origination Software

With the right advice and robust tools, you’ll increase efficiency, manage costs, and meet regulatory challenges. This guide will go over the reasons to upgrade your LOS in detail.


Determine today’s needs and tomorrow’s opportunities

Research your loan origination system to ensure it addresses your needs now and into the future. It’s easy to make a list of things that cause you pain in your loan origination process today. It’s harder to take a bigger picture view of what will constrain growth in the future. Your LOS is an investment in the future profitability of your institution. Take the time to consider both today’s needs and tomorrow’s opportunities, and you’ll end up with a better long-term solution.

Questions to consider:

  • How complex are your deals? Are you doing general commercial and industrial loans? Small business lending? Complex real estate deals? Consumer lending? 
  • Are there new markets that you would like to expand into?
  • What is your appetite for risk? Are you including that risk within your offered rate?
  • Do you want to use credit scoring with auto-decisioning?
  • Is your underwriting function centralized? Do you want to move in that direction?
  • What kinds of reports do you need? How would you like them to be presented?

Your answers will help guide you to the best LOS for your institution. Here’s one more question that institutions don’t often consider until it’s too late: is your existing technology compatible with your LOS? You must have up-to-date technology if you want to use the latest and greatest in loan origination system technology. Security and compliance requirements alone call for a current technology platform. You simply cannot move forward if your internal technology is behind the times. 

Make sure you also consider the benefits of cloud-based infrastructure in an LOS, which can give your financial institution a competitive advantage in terms of flexibility and scalability. While you can – and many financial institutions do this – take the “best in breed” approach, where institutions implement the best siloed solution for each business function and then attempt to integrate the solutions, this will not be the most efficient because there are bound to be integration challenges. Instead, financial institutions can ensure all critical information is securely stored and accessible from one cloud-based system, which promotes heightened visibility of the loan pipeline. 

In addition, this supports a collaborative lending workflow across multiple devices, where even remote employees like commercial relationship officers that are onsite with customers can help push loan requests through. Such a system will also give employees more bandwidth to focus on tasks that positively impact your bank’s bottom line and serve customers better, whether with the computers on their desktop or with the supercomputers in their pockets. Leveraging a cloud-based LOS also enables banks to quickly and easily scale processing capacity up or down to react to changes in customer demand while allowing banks to choose where they want to run certain systems. 

As you research an LOS, be sure to look for a complete, end-to-end solution, one that handles today’s issues and tomorrow’s opportunities. Look for a robust combination of features and functionality rather than one piece of software that solves only a portion of your origination needs. Today’s most competitive and successful banks have a “do less with more” mentality and strive to grow their institution through strategic automation. For instance, having an LOS with an embedded portfolio risk management system that facilitates continuous, proactive portfolio monitoring will help you address problem accounts while driving productivity within your institution.

In short, with a common, cloud-based LOS, your bank can accomplish more without the added cost of hiring and training employees. As your bank grows its portfolio, your team will appreciate an LOS that can support all of their needs including risk management, viewing documents and images, launching letters and conducting statement spreads and more. 

Document your processes

It’s hard to know what capabilities you need in a loan origination system if you don’t have your loan origination processes clearly defined. Without firm processes in place, you run the risk of an LOS dictating them, and that can hurt your business. Take the time to document your preferred processes, and then look for a lending software provider with the flexibility to configure the system to your needs rather than force you into a practice that may not be best for your institution.

Your new LOS will come with capabilities you simply don’t have today. For that reason alone, you’ll need to evolve in order to leverage your LOS investment and capitalize on the many benefits that an end-to-end common loan origination solution offers. By knowing how your processes work today, you’ll be in a better position to improve upon them with the adoption of your new LOS. Do not just automate your current processes. Instead, seek automation that actually improves your processes. 

As you document your processes, make special note of aspects that empower your team—or possibly even hold them back. Look for opportunities to speed up your process and expand wallet share. Highlight areas that work well for your business and areas where you could use some guidance. All of those notes will help as you evaluate loan origination system providers and help your chosen partner successfully implement the solution. Seek out a provider with a solid track record in implementation and advisory services, and look for deep industry experience. Your LOS partner can—and should—serve as an extension of your team.

man working on computer

Review your data— and your analytics needs

Whether you have a robust analytics engine now or rely on cobbled-together reports to drive decisions, make a list of the data you have access to and identify what kinds of analytics you use or want to use in the future. Ultimately, the right data analytics tools will help your financial institution understand your customers’ specific needs and how to best meet those needs in a way that strengthens relationships and increases wallet share. This becomes a massive competitive advantage as 40 percent of customers value relevant, personalized service as a deciding factor when selecting a primary bank, according to a 2016 industry study. In fact, 63 percent are willing to share their personal data to receive more relevant product and service options. 

Therefore, it’s important to look for a loan origination system provider that offers analytics to help you make sense of your data, identify the most profitable opportunities within your portfolio, and make actionable decisions that will positively affect your bottom line. 

Here’s some reporting functionality to look for in your LOS provider:

  • Configurable and customizable dashboard reporting tools
  • Reports that pull directly from your core data
  • Integration that gives you a 360-degree picture
  • Actionable and shareable data

Let’s dig into that last point. Ultimately, you want an analytics approach that helps you DO something with your data. The data is business intelligence; the analytics are how you use the data to make an impact. If you can’t capture the data and convert it into something meaningful, the data points themselves are practically useless. 

A top-notch LOS can help you leverage the power of integrated data and make it easier to consume through customizable dashboards. A system that enables employees to configure their view of data analytics based on job role ensures they see the data that is most relevant to them and their objectives. For example, a financial institution’s board members and C-suite can tailor a dashboard to spotlight key areas of interest and view all the data necessary to design growth strategies for the upcoming year. This also empowers your chief lending officer with greater visibility of his lending pipeline.

It’s also important that your data solution offers an enterprise view, taking core data, credit data, financial data, and external third-party validation and analyzing it to identify risks and opportunities at the portfolio level. Beyond the portfolio, the insights from your data and analytics can help you pinpoint profitability at the account, branch, region, and enterprise level, as well as highlight the products and services that generate profitability. From there, your institution can capitalize on the performance of those top-performing accounts and understand which accounts or relationships need nurturing. 

Ultimately, a good analytics engine gives you that full view so you know which customers are profitable and how to find more like them.

Look for ways to connect the dots.

Loan origination system integration is the final piece of the puzzle. You certainly have to be open to change, and expect it may take some time for your LOS partner to get to know and understand your institution in order to implement the right solution. Change and integration bring their own challenges. Your job is to make sure as many things work together as possible and do so in a way that maximizes efficiencies and benefits.

Implementing a loan origination system should not be a cookie-cutter process. Be sure your chosen partner reviews your current processes and works with you to adapt them as needed. They should do as much listening on the front end as they do training on the back end. Standard implementation should include: consulting, expected duration, milestones, resources required, and a clear statement of work for each phase. Your partner should also actively guide your team through configuration, training, testing, and production. And don’t forget postimplementation support. You’ll need a service level agreement with flexible support hours and low ticket time resolution.

Installing a loan origination system is a major undertaking that can reap huge rewards—if you have the right solution. You and your LOS partner need to work together to connect the dots so that you are receiving those benefits as seamlessly and quickly as possible. 

How to Prepare for Los Integration:

  1. Look for an end-to-end solution
  2. Find an LOS partner with a proven track record of integration success
  3. Lean on your LOS provider as a partner and adviser
  4. Approach the project in phases
  5. Be patient and keep your eye on the prize

The Prize at the End of Integration:

  1. Time and cost efficiencies
  2. Boost productivity and focus more on business development
  3. Portfolio growth with no additional full-time staff
  4. 100 percent confidence in data captured on the front end and data booked to the core

The right partner

When you’re seeking a loan origination system partner, look for a provider with years of experience in the field. It’s important that your partner knows the business and is dedicated to its clients and their successes.

Ready to learn more?

We've developed this guide to Loan Origination System Basics that is designed to help you better understand what a loan origination system is and gain a deeper understanding of how implementing loan origination software can benefit your financial institution.

Additional Resources

A Guide to Optimizing Commercial Lending

Follow this guide to remain competitive in today's ever-changing commercial lending field. Optimize your lending process.

Download Guide

Ready to learn more? Get a free demo. Let's Talk

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Baker Hill’s sophisticated technology solutions enable banks and credit unions to compete aggressively in today’s complex lending environment. We leveraged more than three decades of lending and risk management expertise to build Baker Hill NextGen®, the cloud based common loan origination and risk management solution built with the latest technology to help financial institutions address regulatory and competitive pressures while delivering the very best digital consumer experience.

Our promise is to add value along the entire buyer cycle – from consultative selling to the training and education that helps our clients maximize their investment in technology. That’s why more than 500 banks and credit unions trust the experts at Baker Hill to help them work smarter, make sound credit decisions, and drive more profitable relationships.

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